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Climate action, international trade and government procurement

At COP28 much was made of the first explicit reference to a transition away from all fossil fuels in energy systems. But the conference achieved other significant firsts that have received far less fanfare, says Sandra Hamilton.

Long overlooked by climate policymakers it was encouraging to see for the first time international trade, and the vital market-shaping role of government procurement, placed front and centre at the recent COP28 conference.

A taskforce on net zero policy was created, and to mitigate the risk of exacerbating social inequalities a net zero transition charter was also launched. Together these advances emphasise the need for transparency and integrity amongst non-state actors, engaging businesses in a fair and inclusive transition to net zero by advancing commitments to foster collaboration and partnerships with communities, governments, and civil society.

Indeed, speaking at the summit’s first ever dedicated ‘trade day’, the Director-General of the World Trade Organisation (WTO) used her opening address to position trade as an essential part of the solution to climate change and as an enabler of climate-smart growth, emphasising the vital role of government procurement for the first time.

As WTO Director-General Ms Okonjo-Iweala said: “Governments spend around US$13 trillion in public procurement every year, accounting for roughly 13% of global GDP and 15% of global greenhouse gas emissions.”

Government procurement remains more price-taker than market-shaper

Yet government procurement remains an under-utilised climate and social policy mechanism. While the G20 accounts for 85% of global GDP, recent research suggests that only six countries - Japan, South Korea, Italy, Germany, Canada and the UK – representing approximately 17% of GDP, have adopted climate procurement regulations at the national level (Dias et al., 2023).

To shed light on how trade policy for climate action could accelerate the transition to a climate-friendly global economy, at COP28 the WTO launched its Trade Policy Tools for Climate Action report, placing government procurement second amongst ten trade policy recommendations for climate action.

Calling for greater emphasis on government procurement policies as a mechanism to significantly reduce greenhouse gas emissions, the report highlights the potential of such policies to produce major economic benefits, such as new green jobs and enhanced energy efficiency. The report further suggests that governments could revise their domestic procurement policies to include climate-sensitive criteria, such as science-based, low-carbon requirements in tenders, and make such criteria not just optional but mandatory.

Failure of voluntary approach – moving to mandatory

The backdrop here is that the voluntary guidance policy approach to advancing sustainability over the last 20 years has failed to drive the scale of change required. In 2001, Japan became the first nation to mandate green public procurement, an approach credited with greening 70% of Japanese government contracts - the highest country-level adoption achieved by any nation. However, lack of progress at the international level has led to nations advancing a mixed approach to sustainability regulations, resulting in a dynamic, yet fragmented, regulatory landscape for multinationals.

Harmonising sustainability regulations internationally is a complex process. However, while standardised regulations seek to mitigate a race-to-the-bottom by raising the floor of international standards, government procurement remains under-utilised as a powerful lever to stimulate and reward the rise to the top, most sustainable market actors.

Given the scale and urgency of the climate emergency it is reasonable for us to expect that governments will lead by example. Yet, as my own research has argued, government procurement remains more ‘price-taker than market-shaper’ prioritising lowest price over the most sustainable solutions.

UK leading the way

In many respects the UK is leading the way. In 2020 it became the first country to mandate that social value must receive a minimum 10% weighting, and be explicitly evaluated at the award stage of central government contracts, including defence.

In 2022 this policy, which fundamentally changes how value is defined in government contracts, was further adopted by the NHS, which accounts for 4% of the UK’s carbon emissions. Additionally, firms bidding on UK government contracts valued at over £5 million must provide a carbon reduction plan, with any failure to submit now invalidating the bid.

But globally, mandating the inclusion or evaluation of sustainability criteria remains the exception, rather than the rule. While the green and social outcomes that matter most to the future wellbeing of society – clean air, water, the health and wellbeing of our families – are priceless, government procurement and international trade operate within a market system that highly values lowest price, failing to place sufficient value on the wellbeing of people and planet.

Priceless procurement – valuing what matters most in government procurement

Governments are the world’s biggest buyers, and every purchase has a social consequence that can be positive or negative. I believe it’s time for government contracts to be awarded based upon the most inclusive, sustainable solutions available within publicly available funds.

Quite why governments need a business case, rather than a public value case, continues to perplex me. Exemplary leadership is now needed to transform the role of government procurement in society - to value what matters most by changing how value is defined in taxpayer funded contracts.

Given that much of what society most values cannot be monetised –planetary, human health and wellbeing – price is often the least effective metric to evaluate total societal value and to ensure that government procurement aligns with urgent global sustainability objectives.

It wasn’t until COP28 that international trade and government procurement was invited to take a seat at the table. This was a significant step forward, but more can be done.

Fostering responsible business

Government procurement can and must do more to foster responsible business practice globally. For instance, changing just a few words in the WTO Government Procurement Agreement would transform how value is defined in taxpayer funded markets valued at US$1.7 trillion across 49 WTO-GPA member states.

Revising the text from ‘may consider environmental criteria’ to ‘must evaluate green and, or social criteria’ would stimulate and reward international trade based upon the level of contractual commitments to address not only the climate crisis, but other global grand challenges.

Sandra Hamilton is a PhD candidate at Alliance Manchester Business School. She was recently awarded the 2023 Emerald Literati Award for the most outstanding paper published in Critical Perspectives on International Business.

Blog posts give the views of the author, and are not necessarily those of Alliance Manchester Business School and The University of Manchester.

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